Home > Notes From the Field: World Bank Projects Undeterred by Trade Developments in Armenia

Notes From the Field: World Bank Projects Undeterred by Trade Developments in Armenia

Submitted by Miles McKenna
On Wed, 10/30/2013

About "Notes From the Field": With this occasional feature, we let World Bank professionals who are conducting interesting trade-related projects around the globe explain some of the challenges and triumphs of their day-to-day work. The views expressed here are personal and should not be attributed to the World Bank. All interviews have been edited for clarity.
The interview below was conducted with Gohar Gyulumyan, a Senior Economist in the World Bank’s Europe and Central Asia regional division of the Poverty Reduction and Economic Management (PREM) network. Her work has been strongly centered on economic development in Armenia, where she is now based in the country office. She spoke with us about her most recent work on trade facilitation and the removal of trade barriers, including what the recent government announcement to join the Eurasian Customs Union may mean for the Bank's work in the country in the future.

Trade Post:Tell us a little about yourself and how you came to be working in your area.

Ms. Gyulumyan: I joined the bank in 1999, and at that time my main responsibilities were more junior-level economist work—providing input and helping teams on reports. As I gained experience, I started doing more senior-level tasks, and eventually I became task team leader on some projects. Now, I am a senior economist working on Armenia, and I’m based in the country office. I work on microeconomic issues and strategy, budget-support operations, and I manage trust funds to provide technical assistance on capacity gaps to the government.

Trade Post: How have you liked being stationed in the country office?

Ms. Gyulumyan: Being based in the country office allows me to have more interaction with clients, to better understand their needs, and to be more responsive. It also allows me to sense how the economy is developing, what are the constraints to that development, and how we can be more relevant to the client. I think it is different from when you visit the country two or three times a year. If you are in the country office and you see it every day, this allows you to better understand these needs.

Trade Post:Most people don’t know a lot about the economy in Armenia. Can you give us a quick synopsis and tell us what you’re currently working on there?

Ms. Gyulumyan: The Armenian domestic economy is small—the population is only 3 million. So, the domestic market is not large enough to be an engine of growth over the long-term or to provide sustainable sources for any redistribution of income. That’s why this economy should be export-oriented. The government should stimulate export sectors, and it should generate resources from these sectors. Then it should redistribute them in a way—whether its projects, whether its incomes—so that people working in these sectors will increase their incomes or they’ll benefit by the government reinvesting through the budget. Currently, exports are just a small part of overall GDP. When we compared it with other peer countries, we saw that Armenia is on the lower end of the spectrum on this indicator. Our work here has helped mobilize technical assistance resources to help the government produce a more export-led industrial strategy, and, now, the project I lead is aimed at implementing this strategy.

Trade Post:What are some of the major obstacles Armenian firms face in trying to increase exports?

Ms. Gyulumyan: In Armenia, the SME sector is mostly represented by a large number of small companies. There are really very few medium-sized companies compared to other countries, where medium-sized companies tend to be more dominant. But here, we have either a large number of small companies or a few large companies that are dominant in the domestic market, especially on the import side. So, this size disadvantage is a real problem. With only a small number of small companies, it will be very difficult to increase or expand exports, simply because most companies will not be able to reduce transportation costs or sign big contracts for exports. Importing countries are not interested in buying from many suppliers—they are interested in signing one contract with one large company so that they deal with only one person.

And secondly, of course, the country has its own peculiar environment—Armenia is landlocked. It needs to use multiple modes of transportation to reach the nearest large markets in Russia or Europe. It also has, let’s say, a difficult neighborhood. It uses Georgia’s transit system to reach Russia, but Georgia’s relationship with Russia is not really that good. It uses Georgia and the Black Sea to reach the European market, but again has to change transportation many times, which increases the cost of shipping goods. These extra costs should be offset by increasing productivity or by developing some innovative goods. But part of this comes back to the size disadvantage. It is very costly to invest in innovation and be able to compete.

Trade Post:What are some of the ways the Bank is working with the government there to overcome these problems?

Ms. Gyulumyan: One of the ways we have overcome some of these challenges is by working with our government counterparts to facilitate intra-sectoral dialogue and by supporting the establishment of sectoral associations. This helped achieve some positive outcomes in terms of reduced logistics costs and other expenses for SMEs during export transactions. Once these small exporters were better organized, they demanded the government introduce new customs clearance procedures for consolidated goods. These reduced the steps in customs declaration processing, and therefore helped lower transaction costs and the overall shipping costs for small, individual exporters. Of course this is just one example, but it’s important progress, and we’re helping to produce more action plans and timelines on remaining issues that still need to be addressed in the government domain.

Trade Post: Speaking of timelines, the last month has seen a lot of speculation surrounding Armenia’s announcement to join the Eurasian Customs Union. What was your initial reaction to the news?

Ms. Gyulumyan: Frankly speaking, that was a surprise. For the last three or four years, we were aligning some of our programs with the EU office here because the government seemed more inclined to sign the Association Agreement. Then, a month ago, there was a high-level political announcement which changed the country’s whole orientation to trade. But the technical assistance projects that we have do not necessarily assume either joining the Customs Union or going with the Association Agreement for greater European integration. This decision will help, actually, to implement a strategy which is neutral towards either.

Trade Post: What might be one of the possible effects on trade if the government follows through over the next few years?

Ms. Gyulumyan: Well, there is an element to this that if Armenia joins the customs union it may imply that it is changing its external tariffs. This would likely be tricky, since Armenia has been a member of the WTO since 2003, and has already committed to a more liberal trade regime in terms of external pricing. But it may need to harmonize its tariffs with Russia and Kazakhstan, and that may lead to higher costs for importing from other countries. But for exports, Armenia still needs to address very fundamental issues—from the competitiveness of its products, to moving to higher-value products than what it produces now, which is more extractive mineral resources and basically some low-value products, like processed foods. I think we are helping them to address these issues.

Trade Post: So will this announcement actually impact your projects?

Ms. Gyulumyan: On the Bank side, we don’t want to hold back our assistance. We see the government as interested in continuing with these programs, whether it’s producing action plans or implementing their packages. They remain committed to export-oriented growth, and therefore our support for these policies is on track. Afterwards, entrenching themselves in any European markets, Asian markets, or Middle Eastern markets will be easier since they’ll be producing more sophisticated, higher value-added goods.